Anshuman.docx

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US: MODERATELY POSITIVE

• US growth will grow at a modest 2.6 percent in 2015.

• Profitability may come under increased pressure as the business cycle maturesand cost increases are imminent.

• Americas strength in technological progress needs to help accelerate

producti!ity.

EURO-AREA: CAUTIOUS SHORT-TERM OPTIMISM, BUT DOWNSIDE RISKS

ACCUMULATE

• "espite significant downside ris#s$ the %uro Area is pro&ected to grow at 1.6percent in 2015$ almost double that of 201'.

• (odest reco!ery in domestic consumption is a li#ely source of growth as labormar#ets impro!e.

• )owe!er$ disinflation or e!en deflation could bring growth rates further.

ASIA-PACIFIC: CHALLENGING IN CHINA; MOSTLY POSITIVE ELSEWHERE• "espite softening growth rates$ the Asia*Pacific region remains the leader for

global growth.

• +rowth rates of ,hina and -ndia are con!erging to 5.5 percent from 2015201/.

• "espite short*term headwinds from global economy$ Southeast Asia willstrengthen to global production base.

LATIN AMERICA: UPSIDE POTENTIAL

• %conomic conditions in atin America are unli#ely to impro!e rapidly in 2015$ withregional growth at only 1. percent.

•

Slowing prices for commodity and energy eports pro!ide significant downside.• Producti!ity growth should build on in!estment$ impro!ed business confidence$

and a better educated labor force.

AFRICA: POSITIVE, BUT UNCERTAIN

• +"P growth in Africa in 2015 is pro&ected at '.' percent.

• 3igeria will be the strongest performer at 6.4 percent growth in 2015$ but hea!ilydependent on natural resources and !ulnerable to global demand.

• A positi!e growth outloo# for Africa is strongly dependent on impro!edinstitutional performance and better go!ernance.

$ e!erybody$ lets get ecited about 2015. Sure$ theres %bola and 7ladimir Putin and

-slamic State terrorism. 8estern %urope is bac# in an economic rut$ 9apans reco!ery is

faltering again$ and ,hina loo#s as if its headed for its slowest growth since 1//0. :ut

there are good things happening$ too. i#e$ well$ strong sales of recreational !ehicles


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made in northern -ndiana; says "erald

:ontrager$ chairman of the ?ecreational 7ehicle -ndustry Association.

:ontrager$ the chief eecuti!e officer of family*owned 9ayco in (iddlebury$ -nd.$ predicts

the industry will tie unit sales records in 2015 and brea# them in 2016$ than#s to rising

U.S. employment and continued low interest rates.

he good times arent confined to northern -ndiana$ the hub of ?7 manufacturing. he

U.S. as a whole is emerging as the most li#ely candidate to power world growth in 2015.

3orth "a#ota is craBy busy with shale oil production. Seattle is swamped

with :oeing orders. -n Silicon 7alley$ Apple is selling tons of iPhones. 3ew Cor# ,ity has

more &obs than e!er$ as tech companies such as +oogle Dwith more than '$000

employees in the cityE lead the way.-ts a welcome turnabout for the U.S.$ which until recently was the planets pariah. 9apan

called the 200*0/ financial crisis the and France dubbed it After political brin#manship brought the federal go!ernment within a

whis#er of default in 2011$ ,hinas Ginhua news agency warned$

3ow its the rest of the world thats botching things. he -nternational (onetary Fund

called global growth in ctober in its latest outloo#. ,hief %conomist li!ier

:lanchard wrote that

and emerging mar#ets cant grow as fast as they used to without inflation.


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8hether youre the ,% of a multinational or a sole proprietor$ it pays to ha!e a senseof where the opportunities lie and the dangers lur# in 2015. hats what this special

issue is about. -n the following pages$ we offer a detailed loo# at #ey people$ industries$

and regions$ along with the most important emerging trends. his introduction focuses

on the macroeconomic picture=in other words$ the conditions that will help or hinder all

you stri!ers in 2015.

he map gi!es a snapshot of whats ahead$ based on the latest -(F forecast. South

America is a mess$ with Argentina and 7eneBuela leading the losers parade and :raBil

not far behind. ?ussia and 8estern %urope are wea#. All three economies of 3orth

America are loo#ing pretty solid. he strongest growth is pro&ected to be in South and

%ast Asia as well as much of Africa$ which is starting from a low base. hen theres

+reenland$ which is H large. Dhe (ercator pro&ection eaggerates the polar latitudes.E


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he unifying theme is that the global economy is ta#ing longer than epected to

recuperate from the bursting of the debt bubble during the last decade. hree years

ago$ the -(F pro&ected that the world economy would be bac# on trac# by 2015$

growing at '. percent. he U.S. has pretty much met the -(Fs DdiminishedE

epectations. he disappointments$ says the -(F$ ha!e been the :?-, nations=:raBil$

?ussia$ -ndia$ and ,hina=as well as parts of the (iddle %ast$ %urope$ and 9apan.

hats led the -(F to reduce its forecast for 2015 global growth to I.2 percent. -t

pro&ects I.1 percent growth for the U.S. net year$ &ust 1.I percent in the euro area$ and

0. percent for 9apan. ,hinas pro&ected 4.1 percent growth$ high compared with other

nations$ would be the countrys lowest in 15 years. ,hina isnt geared for such a

slowdownJ -ndebted in!estors such as property de!elopers could default on a large

scale if epansion comes in much below their epectations. he disparity in growthrates among the big four economies=the U.S.$ ,hina$ 9apan$ and the euro Bone=was

what reasury Secretary 9acob ew was referring to in ctober when he told

:loomberg$

%pect continued dissonance among economic policyma#ers in 2015. A taste of that

came in late ctober$ when the Federal ?eser!e announced it was ending its third

round of bond buying=and two days later$ the :an# of 9apan said it was epanding its

own bond purchases. Kuantitati!e easing$ as the bond purchases are called$ is

designed to dri!e up the mar#et price of bonds. 8hen prices rise$ yields fall$ lowering

the rates for mortgages and other loans that matter to consumers and businesses. 3et

year$ the %uropean ,entral :an# may embar# on its own Luantitati!e easing o!er the

ob&ections of +ermanys conser!ati!e :undesban#. hat economists at :arclays wrote on ct. I1.


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Fights o!er taing and spending will probably heat up net year$ especially in the euro

Bone$ where France and -taly are clashing with +ermany o!er how big their budget

deficits can be. he %uropean ,ommission in :russels allowed the French and -talians

to run o!ersiBe deficits in ctober but warned that all euro countries will get an in*depth

assessment in mid*3o!ember. +ermanys insistence on austerity ma#es it hard for euro

nations to spar# economic growth$ says "ennis +artman$ author of a daily mar#et

commentary. says +artman$

Some things about 2015 are #nown$ such as the continued warming of the planet.

thers are unimportant$ li#e who wins the Super :owl on Feb. 1 in Phoeni. DSorry$

football fans.E eep an eye on things that are un#nown and importantJ 8ill ?ussias and

,hinas clashes with their neighbors escalate into armed conflictM 8ill the %bola

epidemic brea# out of 8est Africa on a large scaleM 8ill ,hina snuff out )ong ongs

democracy mo!ementM 8ill :ritish elections in (ay increase pressure on the United

ingdom to drop out of the %uropean UnionM 8ill one of the conflicts in the (iddle %ast

boil o!erM Any one of those could ma#e 2015 a !ery ugly year.


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hen again$ there could be happy surprises. -n the U.S.$ frac#ing and horiBontal drilling

continue to eceed epectations$ raising domestic crude oil production more than 50

percent in &ust four years. 3ot only has the oil and gas boom shrun# the U.S. trade

deficit and lifted the economies of eas$ 3orth "a#ota$ and other oil patches$ its also

boosted consumers and the manufacturing sector. says eith 3osbusch$ ,% of ?oc#well Automation.

As a bonus$ falling oil prices ha!e diminished the power of countries such as ?ussia

and -ran to finance troublema#ing abroad. -rans go!ernment runs deficits when :rent

crude drifts below N1I a barrel.

he oil boom is a !ictory for drilling technology$ much of which was in!ented in the U.S.

and is being deployed worldwide. hats an eample of an important theme for 2015J

:usiness in!estment spurred by inno!ation may rescue the world from its protracted

slump. ,onsumers are still ha!ing a hard time paying down debt because their inflation*

ad&usted incomes ha!e fallen since the 2004*0/ recession. :usiness is in a better

position to lead the reco!ery. ,ompanies are sitting on record amounts of cash

because$ with demand wea#$ they dont feel any pressure to update their plants$

eLuipment$ and software. +reat new technologies could set off a burst of capital

spending by con!incing ,%s they must ha!e the net new thing to get ahead of the

competition or a!oid falling behind it.


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,apital spending is the most !olatile sector of the economy and often what turns slumps

into booms. (ichael %nglund$ chief economist of Action %conomics in :oulder$ ,olo.$

says theres rapidly rising demand for drilling and mining technology$ medical gear$ and

efficient passenger &ets. -t so happens that U.S. companies such as

)alliburton$ (edtronic$ and :oeing are leaders in those areas$ but the benefits accrue to

the buyers of the new technologies around the world$ not only to the sellers.

3ew fuel*efficient &ets from :oeing and its %uropean ri!al$ Airbus$ are an eample.

Airlines are shelling out billions for new fleets because their upfront cost is more than

balanced by future sa!ings$ e!en at todays lower prices for &et fuel. -t helps that air

tra!el growth has been strong=passenger*miles rose 6.4 percent in the 12 months

through August. From a macroeconomic perspecti!e$ the important thing is that this

in!estment boom doesnt depend on strong o!erall economic growth$ says %nglund.

For the U.S. economy$ the most critical un#nown is whether 2015 will be the year the

Federal ?eser!e finally begins to raise the federal funds rate$ which it has loc#ed at

Bero to 0.25 percent since the end of 200. he lowest funds rate in history waspercei!ed as an emergency measure during the financial crisis$ but the economy still

hasnt shown that it can thri!e without it. ,ritics say that cheap money is inflating asset

bubbles and that the unemployment rate=5./ percent in September=is as low as it can

get without generating dangerous wage inflation.


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he median forecast of the members of the rate*setting Federal pen (ar#et

,ommittee is for the funds rate to reach 1.25 percent to 1.5 percent by the end of 2015.

raders in the futures mar#et are s#eptical. heyre collecti!ely betting that the funds

rate will be only about 0.5 percent by then. hats either a !ote of no confidence in the

U.S. economic reco!ery or a sign that traders thin# Fed ,hair 9anet Cellen is a do!e

who will #eep rates low e!en after the economy gains strength$ or maybe a little of both.

A Fed hi#e$ whene!er it comes$ could affect growth$ inflation$ and echange rates

around the world. All else eLual$ higher interest rates in the U.S. would tend to attract

more in!estment to the country$ pushing up the !alue of the dollar !s. other currencies.

hat probably wouldnt be enough to damage U.S. competiti!eness significantlyO e!en

with its recent rebound$ the dollar is still cheaper than it was a decade ago. -f U.S. rates

rise$ countries such as -ndia and :raBil that are fighting high inflation might be forced to

raise their own rates to #eep their currencies strong and a!oid a spi#e in import prices.

n the other hand$ %urope and 9apan$ which ha!e no fear of inflation$ might welcome a

drop in their currencies$ which could spur eports and raise growth.


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pre!ents wea#er economies such as +reece and Portugal from depreciating their

currencies$ which can be a Luic# way for a nation with high labor costs to boost its

eports and &uice its economy. As for 9apan$ a sharp increase in consumption taes

walloped its economy this spring. A second increase is scheduled for 2015$ but Prime

(inister ShinBo Abe may see# to delay it if the economy remains wea#. says "a!id (orton$ a partner at ?ocaton -n!estment Ad!isors.

,hina is suffering its own brand of deflation. 8holesale prices ha!e fallen e!ery month

since April 2012. Although President Gi 9inping has !owed to promote consumer*led

growth$ which would please the public by raising li!ing standards$ his efforts ha!e fallen

short. :usiness in!estment accounted for '/ percent of +"P last year$ up from I5

percent in 2000$ according to 8orld :an# data. So much spending on plants and

eLuipment leads to ecess production capacity$ which encourages price slashing that

destroys profitability. ,hina is a ma&or importer of raw materials$ so a slowdown in 2015

would continue to harm resource*rich nations in Asia$ atin America$ and Africa.

,hinese authorities are li#ely to try to help specific sectors li#e agriculture and small and

midsiBe enterprises$ but says Andrew Pol#$

resident economist at the ,onference :oard ,hina ,enter for %conomics and :usiness

in :ei&ing.


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ne driBBly day this fall$ ,arni!al U ,hairman "a!id "ingle sat in a lounge of the

,unard ines Queen Mary 2 $ which was doc#ed in :roo#lyn$ 3.C. )e said demand for

sea tra!el was good despite news reports about %bola. "ingle said$ Pricing o!erall was still he said$ but it was beginning to reco!er

at ,unard$ a luury brand.

,unard sa!es money on fuel by propelling its hulls through the wa!es at a slower pace.

rans*Atlantic !oyages that decades ago too# fi!e and a half days are now ta#ing eight$

"ingle said. -ts an apt metaphor for the world economy in 2015J slower than it once was

but mo!ing forward. )ours after "ingle pro!ided his upbeat outloo#$ the QM2 =the

ocean liner$ mind you$ not some eotic form of Luantitati!e easing=set sail for the,anadian (aritimes.

India

-(F and 8orld :an# forecast 6.' per cent for -ndian economy which accounts for 0 per

cent of South Asias output in 2015$ citing renewed confidence in the mar#et due to a

series of economic reforms pursued by the new go!ernment. 8hile for ,hina its 4.1 per

cent. 8ith economic acti!ity buoyed by epectations from the newly*elected

go!ernment of Prime (inister 3arendra (odi$ -ndia is benefiting from a Q(odi di!idendQ$

the ban# said in its twice*a*year South Asia %conomic Focus report. !er the net yearor so economic growth should be supported by the reco!ering US economy that would

pro!ide a mar#et for -ndian merchandise and ser!ice eports. Future growth will

increasingly depend on strong in!estment and eport performance. Pri!ate in!estment

is epected to pic# up than#s to the go!ernments business orientation$ and declining oil

prices should boost pri!ate sector competiti!eness. :ut economic reforms will be

needed for -ndia to achie!e its full long*term growth potential. he Sense may reach to

the le!el of II$000 by the end of the current calendar year. 8e are setting year*end

D"ecember 2015E Sense target at II$000 Dimputed 3ifty target of /$/I6E$ implying an

upside of 2I per cent from current le!els. he cut in global crude oil will help thecountrys economy to grow further. he #ey policy rates may come down by 50 bps by

(arch which will be followed by further rate cut by 50 bsp by the first half of the net

fiscal.


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-n!estments

US*based 3i#e has made a proposal to the "epartment of -ndustrial Policy andPromotion D"-PPE to set up fully*owned stores in -ndia. 3i#e is one of the worlds largestsuppliers of athletic shoes and apparel globally$ with a mar#et capitalisation of USN 6

billion. US*based (ilacron lc plans to in!est USN I0 million in the net three years inits -ndia operations Ferromati# (ilacron -ndia P!t td DF(-E$ as per president and,%$ (r homas +oe#e. F(- manufactures plastic moulding machines at its plants in

Ahmedabad in +u&arat and ,oimbatore in amil 3adu. :engal loo#s set for one of itsbiggest foreign in!estments. A large pri!ate eLuity firm which has eposure in socialinfrastructure and agriculture plans to in!est o!er ?s I00 crore DUSN '/.02 millionE inthe proposed "an#uni food par# promoted by e!enter +roup. he Foreign -n!estmentPromotion :oard DF-P:E has appro!ed a proposal from -nter+lobe A!iation$ thecompany that runs -ndi+o$ to reclassify shareholding of promoter ?a#esh +angwal as3on*?esident -ndian D3?-E from F"- at present. his mo!e enables the airline to ha!eaccess to fresh F"-. 3orways elenor +roup plans to in!est an additional ?s 40 crore

DUSN 124.'4 millionE to increase its ownership in -ndian subsidiary Uninor to 100 percentO elenor currently owns a 4' per cent sta#e in Uninor. ,hinese telecom eLuipmentma#er R% ,orporation plans to establish a +lobal 3etwor# perating ,entre D+3,Ein -ndia. he centre will see# to manage the networ#s of multiple telecom carriers in

Asia and Africa. 9apans SuBu#i (otor ,orporation DS(,E$ the parent company of (arutiSuBu#i$ will spend ?s 1$500 crore DUSN I.02 billionE to establish a new factory in+u&arat. S(, plans to establish a 100 per cent subsidiary$ SuBu#i (otor +u&arat DS(+E$to manufacture cars on a strictly no*loss$ no*profit basis for (aruti SuBu#i. US*basedeapfrog -n!estment has bought a minority sta#e in ,hennai*based financial ser!icespro!ider -F(? ,apital Finance for USN 2/ million. his mar#s eapfrogs thirdin!estment in -ndia$ after ha!ing earlier bac#ed insurance distribution firm (ahindra-nsurance :ro#ers and Shriram ,,.

G!"#n$"n% Ini%ia%i!"&

-ndias cabinet has cleared a proposal which allows 100 per cent F"- in railwayinfrastructure$ ecluding operations. hough the mo!e does not allow foreign firms tooperate trains$ it allows them to do other things such as create the networ# and supplytrains for bullet trains etc. :ased on the recommendations of the F-P: in its 204thmeeting held on 9uly '$ 201'$ the go!ernment appro!ed 1' proposals of F"- amountingto about ?s 1$52.I crore DUSN 2'/.4 millionE. Additionally$ based on therecommendations of the F-P: in its meeting held on 9une 11$ 201'$ the go!ernment

appro!ed 1/ proposals of F"- amounting to about ?s 2$I26.42 crore DUSN I0.25millionE. he Union ,abinet has cleared a bill to raise the foreign in!estment ceiling inpri!ate insurance companies from 26 per cent to '/ per cent$ with the pro!iso that themanagement and control of the companies must be with -ndians. he ?eser!e :an# of-ndia D?:-E has allowed a number of foreign in!estors to in!est$ on repatriation basis$ innon*con!ertible redeemable preference shares or debentures which are issued by-ndian companies and are listed on established stoc# echanges in the country. -n aneffort to bring in more in!estments into debt and eLuity mar#ets$ the ?:- has


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established a framewor# for in!estments which allows foreign portfolio in!estors DFP-sEto ta#e part in open offers$ buybac# of securities and disin!estment of shares by the,entral or state go!ernments. he go!ernment has ta#en ordinance route to increaseforeign in!estment limit in the insurance sector to '/ per cent$ from 26 per centcurrently. :esides$ it has also liberaliBed foreign direct in!estment DF"-E policy for

medical de!ices. Under the (a#e in -ndia campaign$ the Prime (inister has as#edforeign and domestic firms to set up manufacturing units in the country to create &obsand boost economic acti!ities in the country. Similarly$ it has ta#en a series of steps toimpro!e ease of doing business that include ha!ing a time line for clearance ofapplications$ de*licensing the manufacturing of many defence products and introductionof e*:iB pro&ect for single window clearance.

?oad Ahead

Foreign in!estment inflows are epected to increase by more than two times and cross

the USN 60 billion mar# in FC15 as foreign in!estors start gaining confidence in -ndiasnew go!ernment$ as per an industry study. Q?iding on huge epectations from theincoming (odi go!ernment$ global in!estors are gung ho on the -ndian economy whichis epected to witness o!er 100 per cent increase in foreign in!estment inflows bothF"- and F--s to abo!e USN 60 billion in the current financial year$ as against USN 2/billion during 201I*1'$Q according to the study.

-ndia will reLuire around US N1 trillion in the 12th Fi!e*Cear Plan D201214E$ to fundinfrastructure growth co!ering sectors such as highways$ ports and airways. hisreLuires support in terms of F"-. he year 201I saw foreign in!estment pour intosectors such as automobiles$ computer software and hardware$ construction

de!elopment$ power$ ser!ices$ and telecommunications$ among others.

:?-, +"P growth rates D2011*1IE and pro&ections D201'*15E

'()) '()' '()* '()+ '()

B#ai. 2.4T 1.0T 2.5T 0.IT 1.'T

R/&&ia '.IT I.'T 1.IT 0.2T 0.5T

India 6.IT '.4T 5.0TT 5.6T 6.'T

C0ina /.IT 4.4T 4.4T 4.'T 4.1T

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